Chapter – 4

Economic
Planning
 Topics
♦ Introduction
♦ Definition
♦ Origin and Expansion of Planning
♦ Types of Planning
 INTRODUCTION
 In order not to limit the discussion on economic planning to just an
academic exercise, we need to discuss it taking real life examples
from different economies.
 Without a historical background to planning, we would not be able to
understand the meaning and role of planning in India.
 This small chapter intends to introduce the reader to all the whats,
hows and whys of the concept of economic planning with due
recourse to the experiments by different countries from time to time,
including India.
 It could also be considered a theoretical backgrounder for the next
chapter, Planning in India.
 DEFINITION
 A number of definitions have been forwarded by different
economists from time to time since the term „planning‟ entered the
domain of economics.
 To make us develop a clear understanding of planning, we need to
see only a few of them which will enable us to draw out a working
definition that fits contemporary time.
 A large number of economists and experts have agreed that
perhaps the best definition is given by H. D. Dickinson, according to
whom, economic planning is,
 “the making of major economic decisions—what and how much is to
be produced and to whom it is to be allocated by the conscious
decision of a determinate authority, on the basis of a comprehensive
survey of the economic system as a whole.”
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 It was the National Planning Committee, set up in 1938 by the Indian
National Congress which, for the first time, tried to define planning
(in 1940, though, its final report was published in 1949) in India.
 It could be considered the broadest possible definition of planning:
“Planning, under a democratic system, may be defined as the
technical coordination, by disinterested experts of consumption,
production, investment, trade, and income distribution, in
accordance with social objectives set by bodies representative of the
nation.
 Such planning is not only to be considered from the point of view of
economics, and raising of the standard of living, but must include
cultural and spiritual values, and the human side of life.
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 By the late 1930s, there was an almost political consensus that
independent India will be a planned economy.
 As India commenced economic planning by the early 1950s, the
planning commission of India also went on to define planning.
 According to the Planning Commission, “Planning involves the
acceptance of a clearly defined system of objectives in terms of which
to frame overall policies.
 It also involves the formation of a strategy for promoting the realisation
of ends defined.
 Planning is essentially an attempt at working out a rational solution of
problems, an attempt to coordinate means and ends; it is thus different
from the traditional hit-and-miss methods by which reforms and
reconstruction are often undertaken”.
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 In the post-War period, a large number of the newly independent countries
were attracted towards planning.
 Many new forces of change kept refining the very idea of planning due to the
compulsive necessities of industrialisation or the issue of sustainability of the
development process.
 But to carry forward our discussion, we need a working as well as a
contemporary definition of planning.
 We may define it as a process of realising well-defined goals by optimum
utilisation of the available resources.
 While doing economic planning the government sets developmental
objectives and attempts to deliberately coordinate the economic decision
making over a longer period to influence, direct and in some cases even to
control the level and growth of a nation‟s main economic variables (i.e.,
income, consumption, employment, saving, investment, exports, imports, etc.)
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 An economic plan is simply a set of specific economic targets to be
achieved in a given period of time with a stated strategy.
 Economic plans may be either comprehensive or partial.
 A comprehensive plan sets targets to cover all major aspects of the
economy,
 while a partial plan may go for setting such targets for a part of the
economy (i.e., agriculture, industry, public sector, etc.).
 Taken broadly, the planning process itself can be described as an
exercise in which a government first chooses social objectives, then
sets various targets (i.e., economic targets), and finally organises a
framework for implementing, coordinating and monitoring the
development plan.
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 One very important thing which should be clear to all is that the idea
of planning first emerged in its applied form and after studying and
surveying the experiences of different countries which followed it,
experts started theorising about planning.
 Thus, in the case of planning, the direction has been from practice to
theory.
 This is why the form and the nature of planning kept changing from
country to country and from time to time.
 As we will see in the following pages, the types of planning itself
evolved through time as different countries experimented with it.
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 As per our working definition, we may say the following things about
planning:
 (i) Planning is a process. It means planning is a process of doing
something.
 Till we have some goals and objectives left regarding our lives, the
process might continue.
 With the changing nature of our needs, the nature and scope of the
planning process might undergo several changes.
 Planning is not an end in itself.
 As processes accelerate and decelerate, change direction and
course, so also does planning.
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 (ii) Planning must have well-defined goals. After the Second World
War, several countries went for development planning.
 As these nations had enormous socio-economic hurdles, they first
set some goals and objectives and then started their process of
realising them via planning.
 In due course of time, there emerged a consensus that planning
must have some goals and those goals should be well-defined (not
vaguely defined)—so that the government‟s discretionary
intervention in the economic organisation could be democratically
transparent and justified.
 Even in the non-democratic nations (i.e., erstwhile USSR, Poland,
China, etc.) the goals of planning were clearly defined.
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 (iii) Optimum utilisation of the available resources. Here we see two
catch concepts.
 First, is the way of utilising the resources.
 Till the idea of sustainability emerged (1987) experts tried to
„maximise‟ the resource exploitation.
 But once experts around the world introspected the
untenability(అసమర్థత) of such a method of resource utilisation, the
sustainable approach was included into planning and here in
entered the idea of utilising resources at its „possible best‟, so that
environmental degradation could be at its minimum and the future
generations could also be able to continue with their progress.
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 Second is the idea of the natural resources which are available.
 Resources (i.e., natural as well as human) could be of indigenous
origin or exogenous.
 Most of the countries doing planning tried to utilise their indigenous
resources, yet some tried to tap the exogenous resources too,
taking leverage of their diplomatic acumen.
 For example, the first country going for national planning, i.e., Soviet
Union, leveraged resources available in the East European
countries.
 India also used exogenous resources for her development planning
wherever it was necessary and possible to tap.
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 By the 1950s, planning had emerged as a method or tool of utilising resources
to achieve any kind of goals for policymakers, around the world:
 (i) Trying to achieve a particular size of family for different countries came to
be known as family planning.
 (ii) The process of providing suitable physical and social infrastructure for the
erstwhile or the upcoming urban areas came to be known as town/urban
planning.
 (iii) A country trying to optimise the use of its revenues for different categories
of expenditures came to be known as financial planning. Financial planning is
more popularly known as budgeting. Every budget, be it of the government or
of the private sector is nothing but an exercises in financial planning.
 (iv) Similarly, at the macro and micro levels, there might be any number of
planning processes—agricultural planning, industrial planning, irrigation
planning, road planning, house planning, etc.
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 Simply said, the art of achieving any kind of goal by the use of the
resources we have is the process of planning.
 We may cite a very general example—
 students of a class are able to join the class at the right time coming
from different places of their stay.
 How they are able to do so?
 All of them must be planning their time in such a way that they are able
to join the class at the same time though their places of residence are
not at an equal distance from the class.
 All might be having their own ways of time planning—some might be
having bed-tea, some might not, some might be having breakfast at
their place, yet others might think to take their breakfast in the college
canteen, etc.
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 It means that even if we are not consciously planning or have not
announced it as yet, we are always planning our days.
 Same is correct in the case of countries.
 Many countries announced that they will be planned economies, yet
some others didn‟t go for any such policy announcements.
 The soviet Union, Poland, China, France, India are examples of the
former category while the USA, Canada, Mexico fall in the latter
category.
 But here we are concerned with the conscious process of planning.
 There will be some methods, some tools and types of planning
emerging through time as different countries will start their
processes of planning.